Tuesday, December 30, 2008

Adam Smith On Specialisation

“Adam Smith’s Wealth of Nations [26] published in 1776 was one of the first works promoting “specialization labor” to improve productivity. He observed in pin making that the division of task into four separate operations increased output by a factor of almost five. Whereas one worker performing all the operations produced 1000 pins per day, ten workers employed on four more specialized tasks could produce 48,000 pins per day. The concept of designing a process to use the work force efficiently had arrived.

It should be noted, however, that what worked for one process (e.g., pin manufacture) in 1776 may not work well for a similar process today.”

CommentWealth Of Nations was not ‘among the first’ to promote the “specialization labor” to improve productivity. Adam Smith was a moral philosopher who did ‘nothing but observed everything’. He reported on what he observed. Many others before him had also noticed the division of labour, such as his tutor, Francis Hutcheson, not to mention Plato.

Entrepreneurs, or undertakers, did not need to read Wealth Of Nations to do what they were already doing and had been doing for centuries. If modern society depended on everybody reading one or two books, I suggest it would never have happened.

Smith understood this. Specialisation through the division of labour is not just a matter of splitting each main task in a small manufactory into many smaller tasks to increase output. It is also about splitting tasks (‘outsourcing’ today) into long supply chains, which Adam Smith illustrated with the supply chains involved in making the simple woollen coat of a common labourer – it’s in the much neglected second part of the ‘pin-making’ chapter [WN I.i.11: pp 22-24;Canaan ed. 1937: pp 11-12].

For these reasons (see my Adam Smith: a moral philosopher and his politcal economy, 2008, Palgrave Macmillan, for an account of Smith's - and Young's - significance in these matters), I do not agree that Smith's writing on specialisation and the division of labour "may not work well for a similar process today". If anything, Smith's description of the full supply processes work in ways not yet fully appreciated.

The full significance of his account of the manufacture of a woollen coat lay neglected until Allyn A. Young brought it to our attention in his 1928 article in the Economic Journal.

Eighty years later Young’s paper is still seeping into the consciousness of the discipline, particularly in attempts by neoclassical growth theorists to account for increasing (not decreasing) returns in their equations. The essence of the 'commercial' production process (long preceded by millennia of its slow and gradual social evolution) is fully revealed in parable of the 'woolen coat'.